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Retailers depend on effective inventory management. I share ten steps to deploying effective retail inventory management.

Ten Steps to Effective Retail Inventory Management

retailer inventory management best practices


Inventory Management is vital to any business, particularly in retail operations. Whether you are in the business of online or offline retail selling, efficient inventory management strategies will maximize your revenue, minimize wasted inventory, and increase service levels. 

Inflow Inventory ManagementUnique Needs of Retailers

While every business benefits from a consistent inventory management policy, retailers in particular have some unique needs. For instance, there are specific strategies that must be used. At the same time, there are also specific benefits that retailers can enjoy by employing appropriate inventory management techniques.

There is a wealth of information that retailers can obtain from inventory management. This information is crucial for running the business more efficiently and more profitably. For example, it will keep you updated on your product locations and the quantities of all your products per location. This is particularly useful if you are operating several retail outlets or multiple sales channels. You will know how many stocks per item are stored in each outlet and if necessary, you can reallocate the items to comply with the corresponding demand in each channel.

With retail inventory management, it is also easy to pinpoint which items are not selling in particular outlets. You can either discontinue buying these products altogether or try to relocate them to other outlets where they might sell better.

10 Steps to Organizing Retail Inventory

Basic retail inventory management consists of a combination of different important processes that accomplish specific tasks. When implemented properly, they can boost profit margins and drastically reduce business costs. Depending on the size and nature of your retail business, these steps can be integrated into a rather simple system like a basic ledger or a more complex system that requires advanced software.

1. Centralized Product Record

Retailers frequently deploy a central system of record for each and every product. Each entry contains vital details about the product such as its name, brand and variable data like retail price, expiration date, lot number, and so on. To optimize the stock level of each product, every record should also indicate the amount of inventory on hand, minimum reorder amount, and lead time for reordering.

2. Identify Stock Locations

For retailers with just one outlet or channel, you will probably just have to indicate whether your products are on the display shelves or in the storage room. But for retailers with several stores or websites, there are a lot of possible stock locations. Aside from display and store, you will have to note in which outlet or which warehouse a product is located, or whether it is in transit or consigned with a distributor, and so on.

3. Regular Physical Counts

Routine Physical Inventory Counts of all products is needed to maintain accurate inventory. This process is much simpler with a good retail inventory management system because you will not have to do it all manually. However, you do still to do manual counting at least once a year.

4. Integrate Point of Sale Data

Most retailers now incorporate point of sale data with their inventory management software. The item quantities are updated in real time when a product is scanned at the register. This enables automated replenishment, and also provides a wealth of information about which products are selling well. For instance, a grocer may notice that food staples and raw ingredients sell quicker in the morning, while prepared food items tend to sell during the commuting traffic in the evening. Whatever your industry, real-time point of sale data will help you pinpoint the key driver of sales for each of your product categories.  

5. Consistent Purchasing Process

This step involves the strategic scheduling of when you should analyze your inventory data and place orders. By doing this, you will be able to keep your stocks updated in time for seasonal trends and avoid falling behind as other retailers make a rush to order similar items.

6. Effective Promotion Strategy

It is inevitable that some items will occasionally go through low sales. To keep these slow-moving items from piling up in your storage, you should have strategies for promotions and markdowns to keep them moving and generating substantial income for your business.

7. Reliable Stock Receiving Procedure

Each time new stock comes in from a supplier, there should be an efficient system for verifying the delivery against the purchase order. This minimizes problems due to inconsistency of information and similar mistakes. Should there be any issue, immediate communication with the vendor is necessary.

8. Product Return Process

There will be an instance where a customer will return a product for whatever reason. As soon as this happens, you should check if the product is good to sell, in which case it should be returned to the inventory. A defective or damaged item may either be repaired or returned to the vendor.

9. Manage Dead Stock

Dead stock is made up of items that are defective or damaged, wrong deliveries, or surpluses from seasonal offers. These items should be removed from inventory and dealt with accordingly. Depending on the nature of the item, it can be returned to the supplier, sold to outlets, recycled, donated, and so on.

10. Ongoing Measurement

As soon as you complete all the steps above, you should select some key performance indicators or KPIs to measure the effectiveness of your new retail inventory management system. Some important indicators for the retail business are profitability, turnover rate and sell-through rate.

Example: Beading Supplies Retailer

retail inventory management example

When Chelsea started a small beading supply store, she initially thought that keeping a notebook to keep track of product inventory should be enough. She quickly realized that this is not the case.

Her only outlet then was a single social media account made specifically for the business. Her first products were basic supplies like beads, wires, findings, locks, and tools like pliers and cutters. As you can imagine with the nature of the business, the inventory quickly expanded.

Within a few weeks, the business has grown considerably. With just the beads alone, Chelsea’s inventory ballooned with all the different kinds, colors and sizes. Seeing that there was a significant demand for her products she continued placing orders for all the products that seemed to be most in demand. The inventory was beginning to get out of control, with her tiny store soon consumed with boxes of various beads. Chelsea realized just in time that a simple notebook will no longer suffice to keep track of all her products.

Chelsea implemented a basic inventory management system. She began by developing a more robust organization of her store inventory, with dedicated shelving and areas for each type of product. She implemented a basic inventory management software, which allowed her to create an inventory record for each batch of product. As her beading supply business flourished, the system helped her manage inventory and sales.

With the addition of more inventory and more retail outlets, proper retail inventory management kept everything under control and help keep her profits at an optimal level.


Inventory is the heart of any retail business. If you want your business to prosper, you should keep your inventory closely monitored and properly managed. With the right system in place, you can keep your business running smoothly with minimal effort and your customers will always be happy.

About the Author

Bryce Bowman

Bryce Bowman

Bryce has over two decades of leadership roles in finance and supply chain. In his supply chain roles, he built reporting for multi-billion dollar supply chains. As Division CFO, Bryce established reporting and controls for a multinational industrial business. Bryce now helps companies solve inventory issues through better planning.

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